Turkish inflation probably accelerated to the fastest since January, underscoring the central bank’s challenge as it raises interest rates to try to end a cost-of-living crisis.
(Bloomberg) — Turkish inflation probably accelerated to the fastest since January, underscoring the central bank’s challenge as it raises interest rates to try to end a cost-of-living crisis.
With food and energy costs on the rise, the pace of annual price gains probably soared to near 56% last month from almost 48% in July, according to the median forecast in a Bloomberg poll of economists. Turkey’s statistics office is due to release the data on Monday.
The month-on-month figure was likely 6.5%, according to a separate survey. In Istanbul, the biggest city and commercial capital of Turkey, annual inflation quickened to over 74% in August, data on Friday showed.
Restoring price stability has increasingly become a priority since President Recep Tayyip Erdogan won reelection in May and then revamped his economic team by appointing Finance Minister Mehmet Simsek and central bank Governor Hafize Gaye Erkan.
An effort to end an era of ultra-low borrowing costs has so far included three rate hikes by the central bank to 25% and the unraveling of some regulations that sought to keep credit cheap.
But the second-biggest depreciation in emerging markets this year is still feeding through to the economy and amplifying the impact on prices of recent tax hikes announced by the government to finance a widening budget deficit.
What Bloomberg Economics Says…
“Turkey’s inflation rate likely rose above 50% in August, a level not seen since March, amid higher food and energy prices. The recent lira appreciation is unlikely to trigger price discounts, in our view, but it may contribute to a slower pace of price gains through the rest of the year.”
— Selva Bahar Baziki, economist. Click here to read more.
In late July, Erkan said inflation would probably end the year at 58% and peak in the second quarter of 2024 at 60%. Monetary authorities have warned, though, that price growth may breach their year-end forecast.
The central bank opted for a jumbo rate hike on Aug. 24 — one far larger than expected — in an attempt to anchor inflation expectations among businesses and investors. The central bank is scheduled to decide on rates again on Sept. 21.
Read more: Global Banks Tear Up Forecasts for Turkish Rates After Huge Hike
Most Wall Street analysts say there’s a need for even more tightening. The median year-end inflation expectation has jumped to 65%, according to a Bloomberg survey of economists from Aug. 25 to Aug. 30.
The impact of recent measures including the sharp rate hike “will only be felt with a lag,” Goldman Sachs Group Inc. analysts led by Kevin Daly said in a report. “Hence, we expect strong cost pressures to continue to drive inflation higher in the near term.”
–With assistance from Joel Rinneby.
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